One in four homeowners to face ‘difficulty’ when rates rise

More than a quarter of homeowners believe they will face financial difficulty when mortgage rates rise with the number of people struggling likely to be greater than the number reporting ‘healthy’ finances within three years, according to new research.

A survey conducted by YouGov on behalf of the Council for Mortgage Lenders and based on responses from 2,139 homeowners found 32 per cent currently state they have ‘healthy’ or ‘very healthy’ finances, with this set to fall slightly to 24 per cent in three years’ time.

However, 27 per cent expect to be either be in ‘serious or slight’ difficulties in three years’ time, up significantly from 18 per cent currently.

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The research also shed light on likely triggers of mortgage payment difficulties, many of which are not simply related to the loan commitment itself.

Three in five respondents said higher cost of living will affect future mortgage affordability, while 41 per cent cited minimal savings, 36 per cent pointed to low or falling income, 30 per cent highlighted other debts and 17 per cent said ill-health.

Coping strategies reported by those likely to struggle to meet their repayments include cutting back on non-essentials, cancelling major spending plans, remortgaging to a cheaper deal or working more hours.

A Halifax survey published earlier today revealed that 43 per cent of homeowners said they remain concerned about the impact an interest rate rise would have on their monthly repayments.

Interest rates have now remained at their historic low of 0.5 per cent since 5 March 2009 and it is unlikely they will increase this year, as consensus estimates suggest a hike may come late next year.

Across the market, mortgage arrears are continuing to decline with CML data showing there are currently only 1.18 per cent of loans with arrears amounting to 2.5 per cent of the outstanding balance.

The CML newsletter concluded: “Those who expect their situation to get worse and to be in some degree of difficulty over the next few years are willing to take more action and consider a broader range of actions. They are generally open to trying a combination of coping strategies, rather than just opt for one.

“Although this might be a hypothetical situation, it shows households apparently have a well-grounded understanding of the plausibility of their coping strategies and are being realistic about their prospects.”